Alistair Darling will this week announce a £1bn fund to kick-start investment in green transport and energy projects as part of a "budget for growth".

With Wednesday's budget coming weeks before an expected general election, the chancellor will use his plans for the new low-carbon infrastructure scheme to contrast Labour's support for industry with the Conservatives' more hands-off philosophy.

Business secretary Lord Mandelson, who has spearheaded the government's new, more interventionist approach, told the Observer that the Conservatives "wouldn't lift a single finger" to help manufacturing.

With the public finances tight, the new green fund will be relatively small in scale, but the government hopes to use the cash to tempt private investors to back innovative new ideas. "It's about saying there are ways in which the government can play a role, which are not necessarily multibillion-pound projects," said a Treasury source. He cited the model of the Sheffield Forgemasters plant, where Mandelson last week used an £80m loan from taxpayers to secure a £170m financing package that included support from the European Investment Bank and nuclear supplier Westinghouse.

The Sheffield Forgemasters deal – which will create 180 jobs initially and provide 1,000 apprenticeships – was one of several new industrial investments announced in recent weeks that have been secured with the help of public subsidy.

Mandelson said: "People say: why am I securing Vauxhall, why am I securing the Nissan electric car to be produced in Sunderland, why am I securing the development and production of Ford's green technologies, why did I go to Sheffield Forgemasters to deliver funding for a 15,000-tonne press? It's because if the government doesn't act here, some other government will. If we hadn't bridged the final mile in the way that we did, because the market couldn't or wouldn't provide, then the investment would have gone elsewhere."

With the government committed to reduce UK carbon emissions by 80% by 2050, radical changes in infrastructure and power generation will be needed over the coming decades. Labour hopes that by boosting low-carbon energy such as wind, wave and solar power, and helping to upgrade the transport system to use cleaner fuels, it can help to meet those targets while creating thousands of new "green-collar jobs".

But environmental campaigners warned that £1bn would not go very far. Andrew Simms, director of the New Economics Foundation, said: "If what they're talking about is less than one five-hundredth of the amount that was thrown at the banking system, at a point where investment banks have bonus pots bigger than £1bn, then while the idea is right, the size of the ambition smacks of skewed priorities."

Comparing the task of preparing for a new low-carbon era to the long drive from London to Edinburgh, he said: "You won't get very far on a teacupful of petrol." The Stern review on the economics of climate change suggested it would cost more than £10bn a year to prepare the economy for cuts in emissions on the scale needed.

Mandelson stressed that as well as underpinning growth, the budget would also reaffirm Labour's determination to tackle the public deficit. The latest official figures showed that the public finances are in a healthier state than the chancellor feared at the time of December's pre-budget report, and he could reduce his £178bn estimate of this year's deficit by as much as £10bn.

But Mandelson said that would not alter the government's plans for tax rises and public spending cuts in the years ahead. "We will maintain a tough deficit reduction programme: there's no question about it. It's necessary for the health of the economy, for the confidence of the markets. We will make it absolutely clear that what we have committed to, we will follow through."

However, Darling will also stress that – unlike the Conservatives, who would start cutbacks immediately – Labour will "lock in recovery" by maintaining its financial support for the fragile economy for another year.

The UK emerged from recession in the final quarter of 2009, growing by 0.3%, but Bank of England policymakers have left low interest rates in place, making clear they remain nervous about the sustainability of the upturn.

Separately, Mandelson is also likely to be given the task of overseeing a new state-backed investment bank, which will help to support businesses struggling to secure funding from banks.